Medical Aid Schemes and How they Actually Work
While well over two hundred medical aid schemes were to be found in South Africa during the late ‘60s, there are only around one hundred operating today and many of those early pioneers are no longer in evidence. In practice, however, these were not the first organisations to recognise that there was a need to provide some means to subsidise the high cost of private healthcare. The country’s insurers saw health insurance as a product similar to life insurance and so began underwriting policies for this purpose. Much like life insurance products, they were designed to pay fixed sums in the event of a claim, leaving the insured to cover substantial shortfalls.
By contrast, medical aid schemes, when introduced soon after, were run along very different lines. Recognising the marked difference between the demands of private healthcare and other, more commonly insured contingencies, their managers sought more information about illness, injury, the treatments entailed and their cost, in order to more accurately assess an insured member’s actual needs. The result was products that came much closer to meeting their members’ expenses in full. Armed with a far better idea of their possible liabilities, it was then much easier for this new breed of insurer to design products with both realistic benefits and adequate premium prices.
Medical aid schemes in South Africa are required to operate as not-for-profit companies and are overseen by a board of trustees individually and by the Council for Medical Schemes (CMS) as an industry. They operate along the same shared risk basis as conventional insurers, accepting that, statistically, the majority of members will make either no claims or only modest ones each year. The untapped premiums should then be sufficient to cover the larger claims of the minority. In general, this means that fund managers are expected to maintain a cash reserve of at least 25% of total premium – a figure known as the solvency ratio.
Many local medical aid schemes may fail to meet this requirement, while some exceed by a considerable margin. In both cases, the other important requirement is for a sound international credit rating so that, even in the case of a run of exceptionally large claims, sufficient cash will still be available to cover them. Having a large membership ensures a substantial premium income, but its composition is also important. It must display a balance between the number of pensioners and the aged, whose claims are more frequent and often high, and that of younger members whose claims are likely to be only minimal.
As healthcare costs rise, premium increases are often unavoidable, but do require CMS approval. To avoid membership losses, medical aid schemes have needed to find innovative ways to minimise increases. Restructuring products to limit less crucial benefits is a common solution, as is curbing costs by appointing preferred service providers in exchange for cost concessions. One particularly successful example of tailored benefits is the hospital plan designed for young members, in good health whose main concern is the high cost of hospitalisation in the event of an accident.
KeyHealth is a company that offers comprehensive and relevant, core benefits, many of which are exclusive. Our well-structured products and realistic premiums rank us among the country’s most competitive medical aid schemes.
